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Erschienen in:
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2022 | OriginalPaper | Buchkapitel

10. The Challenge of Manufacturing

verfasst von : Sebastian Morris, Kapil Shukla

Erschienen in: Macroeconomic Policy in India Since the Global Financial Crisis

Verlag: Springer Nature Singapore

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Abstract

In this chapter we analyze the reasons for the modest performance of Indian manufacturing despite its potential. In the analyses the contrast is with the East Asian “Tigers” and China, which all adopted Export Led Growth (ELG)”. In the process we characterize ELG as the simultaneous pursuit of both import substitution and export promotion and not the movement to laissez-faire as many assume it to be. ELG has its own macroeconomic aspect—undervalued currencies, low interest rates, and a growth rather than inflation orientation. The fact of idle labor in transforming economies makes it imperative to reconsider some of the tenets of both conventional trade theories and macroeconomics. We also bring out industrial and trade policy-related debilities on much of manufacturing—tariff inversions, excessive taxation. These had kept scales low and costs high. The prices of non-tradables especially infrastructure services and goods have been very high as well. For long years the export trade profitability was lower than the domestic trade profitability. More functional tariffs allowed the automobile sector to perform better. We also bring out how the vast demand potential in electronics, solar panels, computers, mobiles have been missed by crucial errors of policy. Similarly, we also bring out the perverse consequences of large positive deviation from the uncovered parity condition which not only increases the cost of capital for Indian businesses but puts them at a disadvantage vis-à-vis MNCs, which situation had been avoided by the East Asian “Tigers”. We list out the recent initiatives of the government, especially the Production Linked Incentive (PLI) scheme. The scheme we believe (though too early to analyze) could affect positively certain sectors. The changing global environment brought about by China being seen as an adversary by many countries including the US, China going “green” and China consciously moving into high-tech industries could act in conjunction with the PLI. The very success of ITES and the large remittances inflow act  to create a “Dutch Disease” on manufacturing.

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Vorheriges Kapitel The Recovery
Nächstes Kapitel GST and the Discrimination Against Production Oriented States
Fußnoten
1
Besides favorable demand situation in these periods, the manufacturing sector’s growth and maturity during these periods may have been helped by the reform of the services sectors, especially services connected with banking and finance, ports, shipping and transportation and logistics. This has been argued by Arnold et al (2016).
 
2
There has been much discussion on technological development and competitiveness. Governments can do much to support technological change. Such actions typically take the form of special support programs and incentives for R&D. For the Indian case see Mani, S. (2004). This is an aspect that we do not cover in this chapter. Macroeconomic and industrial policies can be more general than technology policies, and the efficacy of technology policies depends on the growth impetus that overarching policies can create. These have not attracted the attention they deserve.
 
3
At that time the Korean automobile industry was in its infancy and China had just opened up, the American commercial vehicles were quite unsuitable for Malaysian roads, and the European assemblies were expensive generally.
 
4
Among them beside Apple (which was able to survive, thanks to its technological lead over the IBM machine), were Apollo, the series of Amiga machines of Commodore Corp, Trash 80 a game focused computer, Osborne and possibly some others in US, and Europe with significant sales.
 
5
The author had an opportunity to  discuss this matter with one of the policy makers—a special technocrat—who ruled the department, having the personal ear of the PM, and who to all accounts was responsible for the destruction of electronics manufacturing in India, in having kept the tariff inversion for more a couple of decades. In his mind there was no scope for any economic logic of sequencing and he saw the Indian industry as consisting of traders. He put value only on chip making and complex equipment, deriding assembly as “screw-driver” and unworthy of promotion.
 
6
The potential promoters of the NRI group has met the author, and in the discussions that followed, it was clear that the demand for even a tiny percentage of the output of these plants mass producing chips, would not be in India. The bulk of the sales would have to be to China.
 
7
This was one of the main arguments made by the author in a presentations before the DIPP officials and the DEITY titled “Explosive Growth of Electronics Manufacture in India: Problems and Prospects”, at the Seminar.
“Electronics Manufacturing: Can it Drive “Make in India?” at Silver Oak, India Habitat Center, New Delhi, 30th November and 1st December 2015, organized by the IITCOE of the IIMA. Much of the discussion on the electronics industry in India was made at this presentation.
 
8
The easy political acceptance or ‘management’ of non-inclusive development, in a democracy, brought about by appealing to identities, religion and engagement with the frivolous and emotive, has allowed Indian leaders to play ‘statesmanship’ in global fora at the cost of the people that would limit India’s emissions on a per capita basis. It has also meant that over much of the post- independence period, international relations were unduly influenced by “ideology and principles”. Often the positioning was  against the interests of the country. Thus India’s arguments against the Dunkel Draft in the run up to the WTO agreement, fronting for all the LDCs against the US,  and was not in its own interest.
 
9
The author had an opportunity to organize a leadership program for senior civil servants of the Indian Trade Services (ITS), where part of the delivery was at the World Trade Institute (WTI) in Berne. The scholars at WTI who were deeply involved in the case and in other cases of India with the WTO in agriculture, found it difficult to fathom how the Indian side could take positions that could never have resulted in a favorable ruling, when there were other options it could have pursued. Of course, this was not surprising to the ITS officers since the matter was being handled by IAS officers, who in their view being generalists would not be aware of the nuances! IAS officers had over a period been able to successfully push the officers of the ITS (a very tiny cadre) to rather junior and administrative positions such as managing SEZs or serving as economic “advisers” in foreign offices. Not being able to bring the best information and arguments in international trade and other economic negotiations such as in long term procurement contracts is a telling weakness of the government of India. This is a tragedy when India is known to have much talent in these areas, if the disproportionately large number of Indian CEOs in western originating global companies is any indication, as also the academics and consultants of Indian origin globally.
 
10
Actually prices along with storage when storage costs and logistics are not very large.
 
11
While the Bureau of Industrial Costs and Prices (BICP) and the Tariff Commission (which has absorbed the BICP) are charged with the function of carrying out studies on industries including examination of tariff regimes and inversion, the reports are not available in the public domain. Nor does one see evidence of the same being considered in tariff reforms. Relative independence, high reputation, and high quality of the studies would be necessary for these to be inputs into policy making.
 
12
In a non-inflationary manner given the existence of surplus labor which makes the societal marginal productivity of labor close to zero.
 
13
The depreciation provision on account of computers and related equipment, for the year ended 31st March 2021 for Infosys (Standalone) was a mere Rs. 804 crore on a profit after tax of Rs. 18,048 and revenue from operations of nearly Rs. 85,000 crore (https://​www.​infosys.​com/​investors/​reports-filings/​annual-report/​annual/​documents/​infosys-ar-21.​pdf).
 
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Metadaten
Titel
The Challenge of Manufacturing
verfasst von
Sebastian Morris
Kapil Shukla
Copyright-Jahr
2022
Verlag
Springer Nature Singapore
Buch
Macroeconomic Policy in India Since the Global Financial Crisis

Print ISBN: 978-981-19-1275-7

Electronic ISBN: 978-981-19-1276-4

Copyright-Jahr: 2022

DOI
https://doi.org/10.1007/978-981-19-1276-4_10